The government took the easier path of dealing with its revenue troubles: tax the poor and salaried classes further, directly and indirectly, and spare the wealthy. Even where it has tried to tax the powerful, it did so indirectly. The tools used — presumptive or withholding/advance income taxation — were from the 1990s.

The PML-N manifesto promises to increase the tax-to-GDP ratio from under nine per cent to 15 per cent in five years and reduce tax rates by expanding the net rather than taxing the already taxed people and sectors. It also pledges to increase the share of direct taxation in revenues. But little movement has been made in this direction in the budget, which compelled many like economist for Standard Chartered Bank Sayem Ali to wonder: “How is this budget different from the previous ones?”

The government targets to raise its tax revenue 22 per cent to Rs2.59 trillion next year to trim fiscal deficit by 2.5 per cent to 6.3 per cent of GDP and finance its development plan and liquidate circular debt in the power sector to curtail blackouts. The target includes new measures to rake up additional revenue of Rs202 billion, mainly through one per cent raise in sales tax and substantial increase in tax rates for all income brackets. It also raises existing rates or imposes several direct and indirect taxes to help broaden the tax base.

“New revenue measures amount to admission by the government of its inability to bring structural changes and remove distortions in the country’s taxation system and make it fair and equitable by taxing all incomes irrespective of the source,” asserted Vice President of the ICAP Naeem Akhtar. “The purpose of implementing a tax should be to document the economy, reward honest taxpayers and burden evaders. The proposed measures don’t serve any of these objectives. Rather they increase the burden on salaried taxpayers,” he argued.

Income tax measures, including those imposed in indirect tax mode, will produce additional funds of Rs83 billion and increase in sales tax Rs63 billion. Another Rs35 billion will be raised by plugging income tax and sales tax leakages.

“Most new measures, especially increased sales tax and direct taxes in indirect mode, will fuel more inflation at the cost of low income groups,” argued a Karachi-based financial analyst who did not give his name. He was of the view that direct tax in indirect mode has seldom helped document the economy.

“Take the example of agricultural tax. The country collects less than Rs1billion from it despite a potential of over Rs50bn” he said. “Such measures will generate some revenue for Ishaq Dar but will not help larger objective of documentation.”In developed economies greater emphasis is laid on collection of direct taxes, which form 70 per cent of their tax revenues. In Pakistan, it is the other way round and indirect taxes are major revenue source as their share is above 60 per cent of total tax revenues.

The most significant effort to add new taxpayers to the net include implementation of two per cent tax on taxable supplies made to unregistered companies and five per cent additional sales tax on unregistered commercial and industrial consumers of electricity and gas with bills of Rs15,000 per month.

Despite additional measures, the tax revenue target appears to be on the higher side and ambitious. Therefore, Ali thought collection could fall short of the estimates owing to narrow tax base and resultantly push deficit wider. “I see deficit jumping to 6.8-7 per cent of GDP against the estimated 6.3 per cent,” he said.

While salaried taxpayers face higher taxes, major relief was announced for the corporate sector by bringing down corporate tax to 30 per cent from 35 per cent, starting from 2014-15, and substantially reducing taxes on non-corporate business.

Akhtar was not happy with the government’s decision to drastically cut tax rates for non-corporate businesses by increasing the number of tax slabs and decreasing minimum tax rate as it amounted to facilitating tax thieves. “On the one hand the government is asking the salaried people to pay more and on the other it is giving relief to the corporate and non-corporate business.” He also questioned the wisdom of raising sales tax rate on local sales of five zero-rated sectors including textile, leather, surgical goods and carpets from two per cent to 17 per cent. “The FBR was finding it difficult even to collect two per cent sales tax from these sectors. How will it collect 17 per cent now? This shows lack of policy consistency,” he asserted.

Additional tax measures are not only inflationary in nature; they are also feared to discourage investment. For example, the finance act proposes extension in tax holiday for the operators of special economic zones from five years to 10 years, but withdraws this incentive for investors putting up industry in such zones. More importantly, the government proposes to halve the accelerated depreciation on investment of plant and machinery to 25 per cent. “How do such actions fit in the government’s scheme to woo investment to simultaneously stabilise and grow the economy?” wondered Akhtar.

Dar considers the cash accounting system as unfair, because it adds the financial burden of the current year to the subsequent year — which used to be done in the past by adjusting the previous loan accrual as a ‘one-time fiscal deficit’.

His view on the matter carries weight, particularly in respect of the circular debt of over Rs500 billion, which is holding the entire energy chain hostage. The circular debt has already accrued, and it only needs to be settled.

By doing so, the finance minister has made allocations for the current circular debt within the current year’s deficit, to pass the buck where it belonged — the previous PPP government.

The circular debt will be settled under the head of net lending. Net lending is the balance resource transfer left after deducting loan repayments to the federal government. Budget estimates for net lending during fiscal year 2012-13 stood at Rs50 billion. Mr Dar has increased it to Rs326 billion, to settle the circular debt and Pepco’s dues under the government’s initiative to resolve the chronic problem immediately before the current year ends on June 30.

Within days, Rs200 billon will be used to make cash settlements, mostly to independent power producers (IPPs) and Pakistan State Oil, which borrowed from banks and are now facing credit line choking of the worst order. Another Rs126 billion will be settled through the issuance of a bond to organisations like OGDCL and Pakistan Petroleum Limited, because they do not have bank borrowings on their books.

The remaining Rs177 billion of circular debt, relating to public sector corporations like Wapda, Government Holdings Private Limited, Mari Gas and Pakistan Atomic Energy Commission, which have counter liabilities with the government, will be settled next year through set-off or book adjustment. Hence, net lending for the next year has been estimated again at Rs50 billion.

And to stop the recurrence of the circular debt, there is a need for system improvement, loss reduction and an upfront Rs2.50 per unit increase in average sale rate from Rs8.81 per unit to Rs11.30, while still leaving a gap of Rs3.40 per unit to reach Nepra’s determined tariff of Rs14.70, which will be taken care off through a Rs200 billion subsidy allocated in the budget for the next year.

Meanwhile, starting off with a fractured economy, the PML-N, through the 2013-14 budget, has embarked upon an ambitious but tough path, which comprises structural reforms, and stabilization/ consolidation measures that include some unpopular painful actions.

With a 10-point budget strategy, the PML-N government aims to reduce the fiscal deficit to 6.3 per cent of GDP, enhance the tax effort, solve the energy crisis, end the circular debt, gradually reduce untargeted subsidies, create room for private sector credit, stabilise reserves and the exchange rate, reform public sector enterprises, create jobs, enhance the national income support programme and promote austerity.

However, fingers remain crossed as to how space would be created for private sector credit in the short-term, when the government itself has projected to borrow over Rs975 billion from commercial banks to finance the fiscal deficit, against the current year’s bank borrowing of Rs1.576 trillion from the budgeted estimate of just Rs484 billion.

The first and immediate result of the budget announcement came in the shape of an increase in the prices of petroleum products, CNG, electricity, natural gas and other consumer items — all having an inflationary impact — as a result of a widely unwelcome decision to increase the standard rate of general sales tax from 16 to 17 per cent.

More will follow as the government moves early next month to increase base electricity rates by almost 30 per cent or Rs2.50 per unit on average to offset the Rs130 billion tariff differential subsidy, from Rs350 billion this year to Rs220 billion next year. This will be supported by dealing with the circular debt issue, which has hurt components of the entire energy chain, from producers to suppliers and from fuel importers to energy consumers, in the form of cash flow constraints and over 16 hours of power outages.

In response, the government has decided to make a symbolic move to convince international lenders and investors that it is serious in setting right the economic and fiscal direction of the country by containing current expenditure of ministries and divisions by 30 per cent, and those of the prime minister’s office by 45 per cent — excluding salary and pensions, defence, and interest payments.

As part of the government’s strategy to create job opportunities and spur economic growth, there has been a substantial jump in development allocations for next year at Rs712 billion, including over Rs115 billion in block allocations for ‘new development initiatives,’ in which provinces will not have any share.

Of this, Rs540 billion is earmarked for the federal public sector development programme, with a 50 per cent increase over the current year’s allocation of Rs360 billion (which was later increased to Rs388 billion due to excessive spending on discretionary development schemes of the PPP government). Coupled with provincial annual development plans, the total development outlay has been put at Rs1.155 trillion, which gives top priority to energy and water sector projects, including over 2500MW of nuclear power projects of Rs52 billion.

This is followed by infrastructure development, linking of rail and road networks with neighbouring countries like China and Afghanistan, and from Gwadar to rest of the country. This is expected to have a salutary impact on the construction and its associated industries.

The PML-N government is, however, faced with a tough challenge, which requires it to ensure intergenerational equity, an adequate social safety net, and provision of public services. The federal cabinet was warned ahead of budget presentation that this would bring up a critical trade-off between short-term excessive subsidies of an inflationary nature, and long-term economic growth.

An analyst felt that, “all said and done, it was a business-friendly budget.” The budget proposals of Finance Minister Ishaq Dar include measures aimed at improving investment climate, stabilising the economy and generating growth.

On Thursday, the day after the budget announcement, the KSE index rose by 433 points to hit a new record level of 22,758 on the index chart. Most trade bodies extended qualified support to the budget fearing a public backlash.

However, the proposed taxation measures are regressive as they burden common man disproportionately much more than the elite. The reduction of subsidies will lead to increase in utility rates, and result in worsening of living standard of ordinary citizen.

The economy, a top businessmen said, faces serious structural problems forcing it to underperform. “The budget proposals fell short of our expectations in addressing root causes of problems and appear to be a half-hearted attempt to improve management of the economy”.

Some people believe that using strength of numbers the government would get it passed by the National Assembly as any significant retraction of proposals could be interpreted as the government’s weakness and could send a wrong signal to the IMF that is expected to send its monitoring team to Pakistan in the next few days.

The suggested budgetary measures suit big business interests. They offer little to struggling labour intensive small and medium companies in trade and services. Within five key, high performing local industries (textiles, pharmaceuticals, cement, fertiliser and auto sector) the auto industry in particular was disturbed over higher vehicle registration rate and liberalisation of taxation regime for hybrid cars.

In a written initial reaction, the Overseas Chamber of Commerce and Industry (OICCI) evaluated budget thus: “On the first review, we find the budget proposals well below our expectations. It appears that the opportunity of tax reforms has not been availed and instead the government resorted to old ways of taxing the already taxed at higher rates. Increase in turnover and sales tax will impact our members adversely and we find it discouraging for future investment.

“We find the proposals lacking incentives for honest taxpayers, no additional tax credit has been suggested for new investment except those in special economic zones.
The one per cent reduction in corporate tax rate is positive but proposed increase in rate of turnover tax and additional withholding tax will burden various business segments”, the OICCI remarked.

The representative body of multinationals and foreign companies endorsed steps to broaden the tax net but was doubtful about their implementation. It also raised questions over the government’s capability to achieve over 22 per cent increase in revenue generation to achieve 4.4 per cent GDP growth while containing inflation at eight per cent.

“We find the budget requires improvements if the government wants large inflows of foreign direct investment in the country”, it concluded its comments.

CEO, Pakistan Business Council Kamran Mirza found the budget disappointing and not in sync with the PML-N election manifesto. “They endorsed 98 per cent of our business agenda but their promises are not translated in their budget proposals. I am ready to give them benefit of doubt that perhaps the paucity of time did not allow them to carve out a befitting strategy to deal with structural bottleneck stifling growth in the country”, Mirza told Dawn over the telephone in his initial comments on the budget.

“It is not a budget that will change the character of the economy. It is neither bold, nor innovative. It failed to address the root causes of economic malice. The captive tax paying class has been punished with more tax burden instead of bringing in tax evaders in the net”, he said.

“An opportunity has been missed to make a difference to our struggling medium/small trade and industry. I expected better from a party led by a businessman”, a top leader of retailers and wholesalers said in a cranky tone over the telephone.

“Perhaps the disappointment has more to do with unrealistically high expectations of trade and industry which misinterpreted electoral rhetoric of PML-N”, said an analyst monitoring the reaction. He saw the budget to be heavily tilted to suit the interests of the urban elite.

“If you analyse the budget 2013 on merit, it is a desperate attempt to appease the IMF to qualify for its budgetary support, hinting at the deficit target reduction by 2.5 per cent”, he added. The budget proposes to pull the deficit down to 6.3 per cent of the GDP from the current 8.8 per cent by implementing taxation measures and containing government spending.

The chambers and trade bodies of Punjab issued press statements hailing the budget. Zafar Bakhtarwi, President Islamabad Chamber of Commerce and Industry said through a press release: “Many immediate concerns of the trade and industry are addressed including clearing of circular debt within 60 days and completing Nandipur power project”. He hoped for better management of energy situation by Nawaz government.

“All said and done, it is a business-friendly budget and will go a long way in restoring the confidence of investors resulting in surge in economic activity over the period ahead” Sayem Ali, spokesperson of Standard Chartered Bank on matters related to economy and business told this scribe soon after the finance minister finished his budget speech.

One of the key issues is to upgrade dilapidated marketing infrastructure. Inefficient markets have failed everyone, deterring additional investment and crop diversification. They have neither been able to deal with gluts nor with shortages — both are essential parts of crop cycle. Domestic markets are not linked at global or local level, creating huge fluctuations within the country and rendering Pakistani products non-competitive in the foreign markets. Punjab has to link its existing laws to markets and improve market infrastructure.

The province also needs to re-prioritise the sector and set the policy direction. Punjab has reportedly asked the agricultural department, along with some others, to come up with five-year development plans. One hopes that the budget document reflects the planning, setting policy and fiscal framework for the entire term of the government in office rather than a run-of-the-mill income-expenditure statement.

The three other areas that need immediate attention include soil health, climate change, and confusion in the seed sector. Agriculture experts believe that unless the province is able to deal with these issues on a priority basis, its agricultural yields would, at best, remain stagnant, and at worst, keep sliding.

Of late, soil degradation has emerged as important issue that has reduced per acre yield to basics. Soil health issues are a result of two factors: exhaustive crops and heavy pumping of sub-soil water. The world has carefully crafted agriculture cycles of exhaustive and restorative crops. If one crop squeezes life out of soil, the following one helps restore mineral balance in the field. Pakistan is yet to learn this lesson. It is stuck in four-crop (cotton, wheat, sugarcane and rice) cycle, all of them hugely taxing the soil fertility. Farmers have seldom ventured into restorative crops since they feel there is little market for them.

To make the matter worse, with perennial water shortage increasing dependence on sub-soil water, heavy pumping out of ground has helped cumulate minerals on the surface. This is why, despite the best of official efforts, farmers’ agronomical practices and entire range of natural factors favouring a crop, the province has never been able to cross certain production lines. The stagnation in yields of all crops bears this argument. Punjab needs to come up with a comprehensive plan for land reclamation, backed by all available administrative, fiscal and political resources to restore health of its lands.

Similarly, climate change in the country is testing traditional limits of agriculture. In the first six months of the current calendar year, the country has seen two half-a-century-old records of temperature broken. In January mercury went below zero in most parts of plain and the last week of May saw it shooting close to 50 degree Celsius in regions where it never rose to that level. Monsoon downpour is also a threat if meteorological officials are to be believed.

These abnormal spikes have already cost the country close to 1.5 million tonnes of wheat this season. All the key efficiency factors were in the favour of wheat crop, but excessive rains in February and March alone beat them. If opinion of the weather pundits is something to go by, these abnormal weather changes are part of life now.
Dealing with this factor would need whole new agriculture: new seeds, new technologies, new agronomical practices, and investment in all these areas.

The third major area into which the province must pour funds, resources and work out regulatory laws is the seed sector. Seeds of all major crops are either too old or too weak to perform and coupled with poor soil, the yield takes a nosedive. This needs new investment and efficient laws. The Seed Act and Intellectual Property Rights Bill are long overdue; rusting on official shelves. To make seed market work, Punjab needs to prepare new legal and financial frameworks.

The department plans to implement this scheme at taluka and union council level to educate farmers about different tools of farming to help productivity of crops like cotton, rice and wheat.

“We want to educate farmers on how to cultivate even their small acreage of land. It is only the improved practice of farming and efficient use of inputs at farmland which shows the difference”, says DG Agriculture Extension Hidayatullah Chajjro. Generally, he says, farmers do not use recommended doses of inputs required for cultivation of crops. Studies show that up to 50 maunds per acre wheat is achievable, but average production remains between 20 to 25 maunds per acre in Sindh.

The scheme will begin from eight districts: Mirpurkhas, Umerkot, Nawabshah, Tando Mohammad Khan, Badin, Dadu, Sukkur and Khairpur. The focus will be on cotton crop since it is facing a number of issues from cultivation to its picking. Under the project, farmers will use two acres for trial of crop in their conventional way of farming for which they will purchase their own farm inputs. The agricultural department will bring another two acres under cultivation and share the input cost with growers. At the close of season, the difference between per acre yield of the two methods will show farmers practical implications of the experiment.

“Physical training and demonstration will make farmers understand many things in a simple manner,” explains Chajjro. “If the training results in even a five-maund increase per acre, it will create a substantial difference in the overall production.”

According to Chajjro Sindh’s average per acre yield of cotton is 34 to 35 maunds, paddy’s 50 to 54 maunds and wheat’s 36 to 37 maunds. “We are confident that we can increase these yields by five to eight maunds per acre on an average. We conducted trials under this scheme at a couple of places first in said districts and now we are proposing to government to introduce it at union council and taluka level in those districts”, he adds.

From farmers’ perspective, a combination of irrigation water and quality seed is considered vital for crops’ cultivation. Their accessibility to mechanised farming is limited. Sindh government had in the last budget increased provision of subsidised tractors to 8,000 from 6,000.Farmers want the tractors scheme to continue in next fiscal year.

Chajjro realises that the success of the scheme largely depends on availability of irrigation water, and says that the issue has been discussed at different provincial level meetings. “It is manageable because irrigation officials have to ensure availability of water for lower region of Sindh where the first crops are sowed and then proceed further towards upper Sindh region”, he says. Likewise, agricultural research officials are working on quality seed’s production. Farmers generally use a mixed variety of seed which they usually preserve with them. Certified seed is provided by Sindh Seed Corporation (SSC) but SSC can only cater to 20 per cent requirement of total seed and the rest comes from growers themselves. Under ‘farmers’ field school’ scheme, the growers will be encouraged to grow a particular variety of seed on their land, say, two acres, and then preserve it. This will be of great advantage for them, says Chajjro.

Besides, the department is trying to include ‘refresher courses of field staff’ scheme in the 2013-14 budget. They need exposure to use modern technology during cultivation and harvest of crops so that they are able to transfer the same to average farmers at grass-root level. One of the aims of the courses is that the field staff should also learn how to control pre- and post-harvest losses and how to prepare land for better yield.

These courses are designed initially for two institutes of the agricultural department in Sakrand and Jacobabad.

Higher growth rate of this sector (3.4 per cent in FY13, up from 3.1 per cent in FY12) also helped in containing inflation besides giving a boost to export earnings, particularly in the second half of the year.

Year-on-year growth in LSM quadrupled to 4.26 per cent in 9MFY13 against 1.05 per cent in 9MFY13 primarily because key sectors that make up about 55 per cent of LSM witnessed expansion in output. The growth estimate of the commodity producing sector of 3.4 per cent (presented in the economic survey) is bound to go up further if data for the last quarter results in the full fiscal year growth of above three per cent.

Another factor that would likely boost the growth rate of commodity producing sector is the ultra-conservative estimates on rice output. The economic survey puts rice production estimate at 5.541 million tonnes for the cropping year 2013 against 6.160 million tonnes of the last year. But the UN’s Food & Agriculture Organisation and the US Department of Agriculture’s estimates put it around 6.27 million tonnes.

A rising trend in exports of non-basmati varieties which makes up the bulk of export shipments of rice also lends credence to market reports that actual rice output during this year is not short of six million tonnes. Rice Exporters Association of Pakistan has also reported, on the basis of a physical survey of paddy fields, that rice production this year has not been as low as is being speculated by some quarters.

Wheat production at 24.23 million tonnes in FY13 exceeded the FY12 output of 23.47 million tonnes and maize output hit a historic high at 4.63 million tonnes against that of about 4.40 million tonnes in the last year. Higher wheat and maize production helped in growth of food industries and furthered the process of manufacturing of value-added food products. Local markets saw aggressive sales of various brands of corn flour; corn flakes, wheat flakes. One particular company that has been selling a popular brand of packaged rice also recently launched Falak rice flour in retail packing.

Production of sugarcane went up by seven per cent in FY13 to a record 62.472 million tonnes from 58.397 million tonnes in FY12 and the resultant increase in sugar output not only stabilized domestic prices of the sweetener but also brought in export earnings. Export earnings of sugar and wheat added to the already high growth momentum in overall food exports and helped in achieving a food trade surplus of $321 million in 10 months of FY13.

In FY13, performance of some minor crops was also impressive: gram output soared 137 per cent to 673,000 tonnes; potato production went up by 11 per cent to 3.767 million tonnes and output of chilies more than tripled to 150,000 tonnes from just 47,000 tonnes in FY12. Cottonseed production increased 5.6 per cent to 3.393 million tonnes which also boosted cottonseed oil output by 5.7 per cent to 407,000 tonnes. Enhanced availability of cottonseed oil benefited solvent oil extraction and edible oil manufacturing industries.

Increased outputs of major and minor food crops had a favourable impact on average food inflation which fell to 7.1 per cent in July-May FY13 from 11.1 per cent in July-May FY12.

In FY13, improved agricultural performance (apart from some areas like cotton production) led to higher growth in agro-based industries as well. Not only profits of food companies surged but sales of agricultural machinery and tractors also witnessed a rising trend. Tractors production rose 34.6 per cent in nine months of FY13 over the same period of FY12 reflecting the impact of higher rural income due to increased support prices of farm produce over the last few years, sustained growth in crops sub-sector in FY13 and reduction in sales tax on farm tractors.

In the livestock sector, milk and meat production increased by 3.2 per cent and 4.5 per cent respectively which too contributed to growth in export earnings of meat and meat products and kept the wheels of local milk processing companies moving. These companies launched new brands of packaged milk and milk-based drinks and are now doing a roaring business. Production of poultry meat also increased, by 8.75 per cent, to 907,000 tonnes and this increase not only helped in maintaining sufficient supplies in the local market but also enabled a few exporters of value-added products to remain competitive in the GCC and Central Asian markets.

Marine and inland fish production, too, witnessed a slight increase in production — from about 7,25,000 tonnes to 7,29,000 tonnes which, coupled with the recent lifting of the EU ban on fish imports from Pakistan, fuelled export earnings of fish and fish products. An important project in fisheries sector achieved a landmark in FY13 after the completion of marine fishing vessels census in Sindh and Balochistan. —Mohiuddin Aazim

World food imports in 2013 are tentatively forecasted at $1.09 trillion, close to last year’s level. Higher bills for fish and livestock products are anticipated to offset
lower expenditures on most other commodities, especially sugar.

Prospects for abundant domestic crops in the least developed countries, low-income food-deficit countries and countries in sub-Saharan Africa are expected to limit their import needs.

This year’s forecast record cereal production of 2,460 million tonnes would represent a 6.5 per cent increase on last year’s reduced level, supported by higher global wheat output and a sharp expected rebound of maize production in the US. Rice production is also set to increase in 2013, although concerns over diminishing prices may dampen growth.

Meanwhile, world sugar production in 2012/13 is set to increase by 4.8 million tonnes, or 2.8 per cent, to 180 million tonnes, with a 6.6 million tonne surplus expected.
Increased production in Brazil, US, Australia and China is anticipated to offset declines in India, the EU and Thailand. World sugar consumption is forecast to grow by about two per cent in 2012/13, amid falling domestic sugar prices.

Global meat production is forecasted at 308.2 million tonnes in 2013, a modest increase of 4.3 million tonnes, or 1.4 per cent from 2012.

International prices of dairy products registered strong growth during the first four months of 2013.

The only activity the ministry was engaged in after its creation was ‘Zero Hunger’ project launched in March, 2012 but it came to a standstill after the exit of ex-premier Yousaf Raza Gilani who had shown keen interest in it. In fact, the ministry itself became dormant since then. The project whose draft was prepared by World Food Programme still lacks operational details.

In February this year, the ministry’s secretary said it has prepared a draft of National Food and Nutrition Security Policy whose “core objective is to reduce the current food insecurity situation in the country by 50 per cent by 2030 and to zero per cent by 2050.” The draft, he said, has been sent to all the provinces and stakeholders for comments. What happened later is not known.

Now the new minister, Sikandar Bosan, after assuming the charge on June 8 said that the ministry will be reactivated and various programmes launched “to achieve the goal of national food security”.

When the ministry of food, agriculture and livestock was devolved, some functions listed in the federal legislative list related to it were retained at the federal level. One such function was to ensure food security. As a result, the ministry of national food security and research came into being. Its major tasks include economic coordination and planning in respect of food, import and export of food grains and food stuff and coordination with research bodies such as Pakistan Agricultural Research Council, etc.

Since how much country’s population suffers from food insecurity has yet to be worked out by the ministry, two figures are usually quoted at seminars, workshops and discussions. One is 58 per cent which was concluded from a national nutrition survey 2011 conducted by the Benazir Income Support Programme. The first minister for national food security and research, Mir Israrullah Zehri, also referred to this figure while speaking in the Senate last year.

The other figure is 48.6 per cent which is based on a 2010 report on the state of food security in Pakistan sponsored by the Swiss Agency for Development and Cooperation. This report was a follow-up of an analysis that the Sustainable Development Policy Institute (SDPI) produced in 2004 in collaboration with the World Food Programme. At a recent seminar, CEO, Society for Conservation and Protection of Environment and Chief Nutrition, Planning Commission of Pakistan, also referred to this figure.

Recent research shows that food security cannot be ensured only by increasing the availability of food by raising agricultural production. It also requires better access to food. In other words, the objective of food security cannot be achieved unless and until the issue of poverty is also addressed. Quoting some independent studies, the PML-N manifesto says that in the past five years, the proportion of population living below the poverty line increased from 34 per cent in 2007 to 40 per cent in 2012.
A drastic reduction in poverty levels has thus become the most important development challenge for the new government.

The PML-N intends to move a legislative bill in the parliament for adding a new article to the constitution to make the ‘Right to food’ a fundamental right of every citizen within a reasonable time frame. This will meet the objective the ministry of national food security stands for. To implement the ‘Right to food’ policy, the Nawaz Sharif government will formulate, in consultation with the provincial governments, “a national strategy for food security to achieve an average agricultural growth of at least four per cent per annum in the next decade, evolve an equitable system of food procurement and distribution, improve the access of poor households to food at affordable prices and evolve a transparent system of safety nets for very poor households.”

Pakistan’s experience clearly shows that marginal adjustments in development policies will not address the issue of mass poverty. The PML-N thinks that a paradigm shift will be needed to evolve pro-poor growth strategies that will change institutions and local power structures in favour of the poor, by giving them greater access to productive assets such as land and livestock and facilities for acquired education and skills. Other important elements of such a pro-poor growth strategy will be increasing non-farm employment in rural areas through small and medium enterprises and greater stability in food prices.

According to reports, the federally administered tribal areas have the highest percentage of food insecure population at 67.7 per cent, followed by Balochistan at 61.2 per cent and Khyber Pakhtunkhwa at 56.2 per cent. Among the districts, Dera Bugti has the percentage as high as 81.2 per cent. In all, 80 of the 131 districts are food insecure. Of these, 45 are extremely food insecure. The 20 districts of Pakistan with worst conditions for food security include 10 districts from Balochistan, five from Fata; three from KPK; and one each from Gilgit Baltistan and Sindh.

Food security is a complex issue, resulting from a mix of climate change, rural poverty, agricultural and population growth. Frequent weather changes trigger shifting patterns in crop growth, leading to lower production, rising prices and inadequate means to feed the world’s hungry millions.

Pakistan’s first-ever climate change policy, officially launched on February 26, 2013, focuses on development sectors such as water resources, agriculture and livestock, forestry, human health and disaster preparedness. Its goal is to ensure that climate change is mainstreamed in the economically and socially vulnerable sectors of the economy and to steer Pakistan towards climate resilient development. Water and agricultural sectors are likely to be the most sensitive to climate change. Fresh water availability is expected to be highly vulnerable to the anticipated climate change.”

According to a report by the World Food Programme, food insecurity — especially when caused by a rise in food prices — is a threat and impact multiplier for violent conflict. It might not be a direct cause and rarely the only cause, but combined with other factors, for example in the political or economic spheres, it could be the factor that determines whether and when violent conflicts will erupt.

IN the London market, gold extended earlier losses on June 13 as US economic data added to feverish speculation on the possible timing of the scaling back of the Fed’s monetary stimulus. Spot gold was down 0.7 per cent at $1,379.16 an ounce.

Stimulus unwinding is likely to spell further downside for gold, which is struggling to stay on an even keel, with fund money draining away from the metal since prices crashed in April. Bullion is now around 27 per cent down from record highs in September 2011.

In the Singapore market, gold extended gains on June 13, as Asian stock markets fell sharply and the US dollar fell to four-month lows on persistent uncertainty over the Federal Reserve’s massive stimulus programme. Investors were still weighing the Bank of Japan’s decision to leave its policies unchanged, and the Standard and Poor’s upgrade of the US credit outlook, viewing the moves as signs of economic recovery and a trigger for the US Fed to end its $85 billion monthly bond purchases.

Demand from major buyer China also propped up gold prices. China, which had shut for the Dragon Boat festival, has been a big factor in holding up bullion prices, even as demand in India, the biggest buyer of the precious metal, has cooled, and investors have dumped their holdings in exchange traded funds.

Indian gold demand remained subdued, and importers and wholesalers struggled to sell supplies from May. The government has raised the import duty on the metal by a third, and curbed gold financing by banks and others in an effort to cut its record current account deficit. Gold imports by India are plunging, as an increase in tax and restrictions on financing shipments boost costs for jewellers. Shipments in June will decline, as only orders placed before the curbs are being shipped now.

The Indian Rupee slumped to a record low last week, partly on concerns that the current account deficit will further widen. Imports had surged in the past two months as buyers thronged to shops for ornaments, coins and bars, after bullion entered the bear market in April, with investors selling the metal in favour of riskier assets on speculation that the global economy was recovering.

Bullion for immediate delivery is expected to drop to as low as $1,250 an ounce over the next month, after the ‘well-defined, symmetrical triangle’ it formed since April 16. That would be the lowest level since September 2010. Gold has fallen 17 per cent this year, as some investors lost faith in the traditional store of value after 12 years of gains. Bullion traded at $1,383.45 an ounce on June 10 in the London market.

Oil

THE world is heading for a glut of refined products, as new Asian and Middle East refineries increase oil processing in a move likely to force less advanced competitors in developed countries to close, states the International Energy Agency.

The IEA said in its monthly report that it expected 9.5 million barrels per day (bpd) of new crude distillation capacity, representing more than a tenth of global demand, to come on steam between 2013 to 2018, substantially more than the forecasted increase in crude production capacity and global demand growth.

The agency said that changes would be already felt from the third quarter of 2013, as global refinery runs may rise by more than two million bpd on the back of increased processing by China, Saudi Arabia and Venezuela.

The IEA also added that global crude supply could struggle to keep up with refining demand because of seasonal maintenance in the North Sea.

However, the agency made little change to its global demand and supply forecasts for this year, saying that demand growth is expected to gain momentum through the year, rising from a low of 215,000 bpd year-on-year in the second quarter of 2013 to 1.1 million bpd or 1.2 per cent year-on-year by the fourth quarter, as the economy strengthens. Annual global oil consumption is forecast to expand by 785,000 bpd in 2013, to 90.6 million bpd, roughly unchanged since last month’s report.

On the supply front, the IEA said that the Organisation of Oil Producing Countries (Opec) crude oil supply rose by 135,000 bpd in May to 30.89 million bpd — a seven month high — due to higher output from Saudi Arabia, Iran, the UAE and Kuwait, and despite lower production from Iraq, Libya and Nigeria. It said that Opec would need to produce only 29.8 million bpd in the second half of 2013 to balance the market.

Meanwhile, Opec predicted that global oil demand will grow more quickly in the rest of 2013, and indicated that the group can keep pumping more oil than the output target it retained at its May 31 meeting, without oversupplying the market. Opec, in a monthly report, forecast world oil demand to expand by 900,000 bpd in the second half, up from 700,000 bpd in the first six months of 2013.

US crude oil production grew by more than one million barrels a day last year, the largest increase in the world and in US history. In the latest sign of the shale revolution remaking world energy markets, crude production in the US jumped 14 per cent last year to 8.9 million barrels a day, according to the newly released Statistical Review of World Energy.

The wave of new crude flowing in oil fields from North Dakota to south Texas, helped keep the global market adequately supplied and helped markets weather declining oil production elsewhere in the world.

In volume terms, last year’s US production gain of 1.04 million bpd surpassed the earlier biggest annual increase of 640,000 bpd, which was recorded in 1967. Most of this new production is coming from dense shale-rock formations, such as the Bakken Shale in North Dakota and the Eagle Ford Shale in Texas. In recent years, the oil industry has developed techniques to hydraulically fracture, or frack, these shales, freeing up previously trapped oils.

Despite rising US production, the nation remains a large crude importer. However, it is bringing in fewer barrels than at any time since the mid-1990s. That is freeing up some traditional suppliers to ship their barrels elsewhere and satisfy rising demand in Asia and Latin America.

However, this surge in US oil output is expected to have only a modest impact on global prices. The US — the third-largest global crude producer, behind Saudi Arabia and Russia — still pumps only about one of every 10 barrels worldwide. What’s more, restrictions on exporting crude oil from the US have muffled its potential impact.

In the New York market, Brent crude oil rose on June 13, reversing an earlier decline after US data showed stronger-than-expected retail sales and a fall in jobless claims, although subdued global energy demand limited oil’s rebound. Brent crude rose 41 cents to $103.90 a barrel after falling as low as $102.75. Prices have declined from a 2013 high near $120 reached on February 8.

Earlier, oil fell on reports indicating weak demand, including a lowered forecast for global economic growth this year by the World Bank. The IEA said that modest economic growth was limiting oil demand worldwide, and some developed economies would see absolute declines in oil consumption in 2013.

Copper

COPPER slid to a six-week low on June 13 as fears that central banks may curb stimulus programmes earlier than previously expected outweighed concerns about supply disruption and delay at two large copper mines.

Copper, which is down 11 per cent this year, later extended losses in electronic trading to reach a low of $7,011.25 a tonne, its weakest since May 3.

Earlier on June 12 in the London market, copper had risen from its lowest level in almost six weeks, as concerns over supply tightness increased after the owner of the world’s second-largest mine declared force majeure on copper deliveries. Keeping gains in check, though, was a deepening economic slowdown in big metal-consuming nations in Asia.

Freeport-McMoRan Copper and Gold Inc. declared force majeure on deliveries of copper concentrate from its Grasberg mine in Indonesia, where work has been suspended after a May accident that killed 28 people. Freeport said the production halt has curbed output by some 80 million pounds of copper, and it is not clear when Grasberg will be reopened.

Three-month copper closed at $7,120 per tonne on the London Metal Exchange, up almost one per cent from $7,065 at the close on June 11. It is still down around 10 per cent so far this year. Weighing on metal prices, export growth throughout Asia has sagged in recent months on slackening demand from the United States, Europe and China, while leading indicators are also pointing to weaker factory activity in the coming months.

Mr Dar spelt out nine steps of his government’s taxation policy — taxing those who are not paying taxes, enhancing the tax machinery efficiency, removing anomalies, simplifying tax procedures, broadening the tax base, rationalising tax rates and exemptions, encouraging corporatisation and documentation, facilitating taxpayers and eradicating malpractice and corruption from the tax administration.

However, most of these measures are not reflected in the tax proposals announced by Mr Dar in the budget, and therefore, look like political rhetoric. No innovation is visible, and the same old measures have been used to pocket easy revenue to reach the revenue target. The focus of the new tax proposals is to raise indirect revenue, and provide incentives to industrialists. But it lacks any direction to lure fresh investment.

The government has imposed Rs209 billion worth of new taxes to meet the revenue target of Rs2,475 billion for 2013-14 — an increase of over 23 per cent from Rs2,007 billion in the outgoing fiscal year. At the same time, the government expects that the economic growth and rise in inflation will add an additional Rs259 billion to the kitty.

Meanwhile, the target for direct taxes has been projected at Rs975.7 billion, while that for indirect taxes has been set at Rs1.499 trillion. The government is expected to realise an additional amount of Rs63.5 billion through sales tax, Rs18.5 billion through federal excise duty, Rs1 billion through customs duty and Rs35 billion through administrative measures like plugging loopholes in income tax and sales tax regimes.

Most of the income tax revenue measures, worth Rs83 billion, are proposed in an effort to help the documentation of the economy. A relief of more than Rs3 billion in income tax has been given mostly to industrialists. Meanwhile, the one per cent increase in general sales tax from 16 to 17 per cent will alone contribute more than Rs40 billion in sales tax collection in 2013-14.

Federal Board of Revenue (FBR) chairman Ansar Javed said that the revenue measures would help the government achieve the tax revenue target for the next year.

The proposed measures may help the FBR achieve the target, but most of them will also have an adverse impact on consumers, as these are inflationary. The increase in the tax rates can encourage corruption through fake and flying invoices, besides tax evasion, and may also induced to reduce consumption. These two factors might actually bring down revenues, instead of raising them.

And higher tax rates may also discourage the documentation of economy. The taxation measures will increase the burden for some existing taxpaying sectors, while easing it for others. Exemptions have been given on those products or accessories, or industries which are not willing to compete, and prosper behind high tariff walls.

There is also no vision in the tax policy to lure fresh investment , except the enhancement of the tax holiday from five to 10 years in special economic zones. .

Meanwhile, the duty exemption on hybrid cars is likely to benefit the elite, and has nothing to do with promotion of industrialisation. It will be difficult to argue that the tax measures in the budget may promote economic growth. There are sectors where monopolies are impeding economic growth, and thriving on domestic sales.

Meanwhile, major tax exemptions stood at Rs239.5bn in 2012-13, 16.3 per cent higher than Rs205.9 billion in 2011-12. And the new finance minister has extended these exemptions for certain lobbies and industries.

In 2012-13, income tax exemptions had cost the exchequer Rs82.39 billion, against Rs69.61 billion in 2011-12, indicating an increase of 18.37 per cent. And this number will increase further following the exemptions given in the new budget.

Customs exemptions had hit government revenues by Rs119.71 billion in 2012-13. A range of exemptions given in the new budget will increase the figure to roughly Rs150 billion in the next year.

These additional exemptions will benefit lobbies that allegedly supported the PML-N in the May 11 elections.

Moreover, some major sectors like agriculture and services continue to be under-taxed, while still others are not taxed at all — reflecting the narrow tax base.

For instance, agriculture contributes hardly Rs1 billion to the total tax receipt, while its share in the national income stands at 21.4 per cent. Similarly, the services sector contributes 36.7 per cent while it has a major share of 57.7 per cent in the GDP.

There is a broad consensus that the tax-to-GDP ratio can only be enhanced if all sectors of the economy proportionately contribute into tax revenue. But nothing has been done to correct these imbalances.

For broadening the tax net, the old practice of relying heavily on withholding agents has again been proposed.. More than seven new adjustable withholding taxes have been introduced, with the government claiming that these will promote documentation of the economy. But this will simply increase the cost of doing business for firms and would be borne by the end consumer.

These and other measures, like increasing the tax on cash withdrawals from banks, will not increase the tax base and only act as easy revenue getter for the government.

Nadra data shows that there are over 3.8 million potential taxpayers. One must then ask what is it that stops the FBR from bringing these people into the tax net, given that only 0.8 million people filed tax returns in 2012.

In short, there is no innovation in the tax proposals presented by the new government, which seem to evolve around the age-old practice of withholding and sales taxes. No announcements have been made regarding audit of taxpayers or use of Nadra data to help bring non-taxpayers into the tax net.